The June ANZ Business Outlook survey showed firms are increasingly pessimistic about the outlook for activity and profitability.

However, it is the ongoing issues of inflation and an economy running at capacity causing most headaches, not recessionary forces.

The data would do nothing to ease RBNZ concerns about the potential for a wage-price spiral developing, said ANZ chief economist Sharon Zollner.

Activity indicators were weaker across the board, the survey found.

But "expected profitability" was particularly dire, said Zollner.

"Investment intentions are slipping. Employment intentions are holding up pretty well, but with the profitability outlook so pessimistic, one does wonder for how long this can remain the case," she said.

Business confidence fell 7 points to -63 per cent in June, while expected own activity fell 4 points to a net 9 per cent expecting lower activity ahead.

Despite recession talk, supply-side issues continued to dominate the list of firms' biggest problems, consistent with inflation pressures that are still intense, Zollner said.

"Finding skilled labour remains the number one problem for firms, while non-wage cost inflation and high rates of pay continue to grow as problems."

In the "other" category, 63 per cent of the text comments related to supply chain problems, she said.

"Traditional recession-type problems such as cashflow/debtors and low turnover remain well down the list, but interest rates are now warranting more of a mention, unsurprisingly."

"In such a supply-constrained environment, it makes sense that inflation pressures are holding up even as the activity outlook slows," Zollner said.

"The RBNZ is unlikely to conclude it can slow the pace of hikes any time soon."

While pricing intentions, cost expectations and inflation expectations were all slightly off their peaks, the RBNZ would be looking for meaningful indications of a slowdown in demand, she said.

"On the wage front, upward pressure is accelerating (outside of the agriculture sector) as regards both past and expected future wage settlements."

While agricultural wage pressure was easing, it was still the highest across the economy.

ANZ Bank chief economist Sharon Zollner. Photo / NZME

"On the investment front, for firms intending to invest more, the key factors are skilled labour shortages, the domestic economic outlook, the level of spare capacity, and central government policy, in that order."

Among firms intending to cut their investment, the biggest factors were the domestic economic outlook, interest rates (rapidly growing in importance), skilled labour shortages (no point in buying that fancy machine if you can't hire an operator), central government policy and the global economic outlook, in that order.

Expectations for residential construction continued to weaken, indicating the potential was there for a sudden slowdown, Zollner noted.

The construction sector was the most concerned about higher interest rates.

The service sector had surpassed construction to now be the most concerned about labour shortages.

- by Liam Dann, NZ Herald